CalSTRS' `perfect plan'
CalSTRS released proposed standards for "the perfect stock option plan," including charging earnings for the cost of stock option grants and having options carry dividend equivalents. The $90 billion pension fund commissioned the recommendations for reforming executive stock options plans from Graef Crystal, a compensation expert. CalSTRS will add the recommendations to the factors it uses in deciding how to vote proxies and in discussions with portfolio companies, as well as promoting them to other institutional investors.
Mr. Crystal also said company boards of directors should make options repricing economically equivalent when the stock price falls, indexing the strike price of stock options to the performance of a market or peer-company benchmark.
AmEx may buy Threadneedle
American Express Financial reportedly is close to acquiring Threadneedle Asset Management for between $399 million and $511 million, said a U.K.-based investment banker familiar with the situation, who declined to be identified. Threadneedle originally was put on the block for $599 million by parent company, Zurich Financial.
The investment banker said American Express is in the early stages of negotiations with hopes of securing a long management contract with attractive fees for the $55.9 billion of insurance and mutual fund assets that Threadneedle manages for Zurich Financial. But by accepting a shorter contractual period, American Express was given exclusive bidding rights for Threadneedle, said the banker, and the ability to force the purchase down. Zurich's assets account for 78% of Threadneedle's total assets of $71.9 billion.
Alan Ainsworth, chief executive officer of Threadneedle, declined to comment on the matter. Ted Truscott, chief investment officer of American Express Financial Advisors, did not return a call seeking information.
Merrill settles suit
Merrill Lynch Investment Managers agreed to settle a suit brought by the £2 billion ($3.2 billion) Co-Operative Group Pension Fund in London, over investment decisions made in the 1990s by MLIM predecessor Mercury Asset Management. The fund had accused Mercury of breaching tracking error limits on its U.K. equities mandate.
Terms were not disclosed. Merrill Lynch spokesman Nigel Webb said the issue had been resolved "amicably" and Co-Operative Group had resumed its business with MLIM. Merrill Lynch has settled similar cases with two other pension schemes - the £4.2 billion Unilever Pension Fund, and the £2.6 billion J Sainsbury PLC Pension Fund. Merrill Lynch reportedly paid Unilever £75 million in settlement.
Norfolk County cuts manager
The $340 million Norfolk County (Mass.) Retirement System is terminating Harbor Capital Management, which ran $7 million in active domestic large-cap growth equities, because of performance, said Joseph Connolly, chairman. Wainwright Investment Counsel is assisting the fund in hiring a new manager now that the RFP process is complete. Bill Peck, portfolio manager at Harbor Capital, did not return calls seeking comment by press time.
GE, Crescent in joint venture
The $36.7 billion General Electric pension fund and Crescent Real Estate Equities set up a joint venture to acquire urban and suburban office properties, said Tim Benedict, GE spokesman. Scott F. McMullin, senior managing director at Holliday, Fenoglio, Fowler, a real estate intermediary that arranged the alliance, said the venture will target $300 million to $400 million in deals, with $100 million of that in equity contributed by GE and Crescent. The remainder will be leveraged. "GE will probably contribute most of the equity, but the amounts have not been set," Mr. McMullin said.
Northern gets Scudder unit
Northern Trust Global Advisors has become subadviser of 12 Scudder Asset Management passive mutual funds, with a total of about $3.9 billion in assets. Northern bought the passive management business of Scudder parent Deutsche Asset Management in the Americas earlier this year. Among the funds NTGI will subadvise are the Scudder Long, Mid and Short Range Lifecycle Funds, and the Scudder EAFE Equity Index, Asset Management, S&P 500, Equity 500 Index and Select 500 Funds.
Union plans lost 8.2% in '02
Multiemployer pension funds posted a median loss of 8.2% in 2002, more than three times the 2.4% loss in 2001, according to a new Segal Advisors study. A benchmark made up of 55% of the S&P 500 and 45% of the Lehman Aggregate Bond indexes also would have resulted in a loss of 8.2% last year.
The study also found the plans' median loss on equity investments was 22.8% for the year, more than double the 11.3% median loss in 2001 but similar to the 22.1% decline in the S&P 500 in 2002. Fixed-income investments posted a median gain of 10.1% last year, nearly the same as the Lehman Aggregate's 2002 return of 10.3% and better than the 8.5% median gain in 2001, the study noted.
Report warns of comparisons
A Standard & Poor's report said credit analysts must be aware of the wide differences in pension accounting rules in the United States and Europe when making comparisons of companies from a global perspective. The report said that adjusting reported pension information to compare S&P-rated U.S. and European companies is a "complex undertaking and may be virtually impossible at times due to the lack of sufficient information and disclosures, requiring the analyst to make additional estimates and assumptions."
Oregon pension law expected
Oregon Gov. Ted Kulongoski was expected on May 9 to sign a bill restructuring the state's $33 billion pension plan, a move that may cut its $16.43 billion long-term shortfall almost in half. The bill eliminates crediting investment earnings to employee accounts, including an 8% guaranteed return, until the deficit is eliminated. Also, beginning Jan. 1, a 6% employee contribution that is often paid by PERS employers will be deposited into a separate transition account.
The House also passed a bill that would set up a defined contribution plan for new employees. The bill is in the Senate General Government Committee.
New hedge fund benchmark
The $67 billion Texas Teacher Retirement System adopted a new hedge fund of funds benchmark created by Tremont Advisors, comprising a 70% weighting in three-month LIBOR and 30% in the S&P 500. The pension fund had used the CSFB/Tremont Hedge Fund index as its benchmark; plan officials wanted a benchmark that was "unambiguous, investible and consistent with its investment style," according to a Tremont news release. Tremont officials said. TRS officials did not respond to inquiries by press time.
